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TMI Blog2025 (1) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are no quarrel with the proposition of the Appellants that in terms of Section 7 of the IBC, what is required to be seen is the existence of a debt and default of the said debt. Once a debt becomes due or payable and there is incidence of non-payment of the said debt in full or part, CIRP may be triggered by the Financial Creditor as long as the amount in default is above the threshold limit. Be that as it may, Section 65 of the IBC is an enabling provision within the statutory framework of IBC whereby even if a Section 7 application has been filed or has been admitted, it vests jurisdiction on the Adjudicating Authority to examine an application under Section 65, if a prima facie case is made out to show that the Section 7 application had been filed fraudulently or with malicious intent and for purpose other than resolution of insolvency or liquidation. In the present case too, there are no error on the part of the Adjudicating Authority to consider the Section 65 application filed by the Respondent No.1 on being prima facie satisfied that the Section 7 application seeking initiation of CIRP proceedings had been filed by suppression of relevant material for purposes other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Mr. Akhil Nene , Mr. Shivam Gautam , Advocates For the Respondent : Mr. Sakal Bhushan , Mr. Vasu Bhushan , Advocates for R - 1. Ms. Eshna Kumar , Mr. Harpreet Singh Malhotra , Mr. Lakshmi Kant , Advocates for R - 3 - 10 JUDGMENT ( Hybrid Mode ) Per : Barun Mitra , Member ( Technical ) The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ( IBC in short) by the Appellants arises out of the Order dated 12.06.2024 (hereinafter referred to as Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-II) in I.A. No. 3602/2022 in C.P. No. 50(PB) of 2021. By the impugned order, the Adjudicating Authority has allowed I.A. No. 3602 of 2022 under Section 65 of IBC terminating the Corporate Insolvency Resolution Proceedings ( CIRP in short) initiated against the Corporate Debtor aggrieved by which order, the Appellants have come up in appeal. 2. Coming to the brief factual background of the present case, basis the Section 7 proceedings filed by Acute Daily Media Pvt. Ltd. and other financial creditors, CIRP was initiated on 17.05.2022 against Corporate Debtor-Sharp Eye Advertising Pvt. Ltd. The Appellants had purportedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given several notices for having defaulted in making repayment of the financial debt before finally filing the section 7 application. It was also contended that debt and default having been unequivocally established and the same having been adjudicated upon by the Adjudicating Authority, this order cannot be indirectly challenged by the Respondent after the period of limitation had expired. 5. It was also emphasized that at the time of passing the admission of Section 7 order there was no order passed by the Adjudicating Authority in respect of the OMP filed by the Respondent. It was pointed out that the Appellants were not even a party to the OMP filed by the Respondent and hence were unaware of the facts and circumstances pertaining to the OMP petition. It was therefore denied that the Appellants had filed the Section 7 petition to pre-empt the likely success of the Respondents in the OMP filed by them. There is no bar to admission of Section 7 application during the pendency of OMP proceedings. 6. It was submitted that Section 65 application cannot sustain merely on the basis of assertion of fraud and malice without any cogent evidence. It was added that the allegation made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. 9. Elaborating further, it was submitted that the promoters of the Corporate Debtor on realising that they were on a weak footing in the OMP and that the present Respondent No.1 was likely to succeed, they contrived the Section 7 petition with a view to pre-empt the Respondent No.1 from gaining control of the Corporate Debtor. Towards this end, they fabricated antedated loan agreements with Appellants-Financial Creditors and showed default in repayment of the loan by the Corporate Debtor. It was contended that the Section 7 petition was pre-meditated and self-induced with fraudulent intentions. It is contended that no loan transactions had actually taken place. What has been sought to be projected as loans by the Appellants were infact not genuine loan transactions but were routine business transactions. It was pleaded that there was no genuine debt. The Section 7 application was filed by the Financial Creditors to fraudulently initiate CIRP of the Corporate Debtor. The promoters misled the Adjudicating Authority into initiating CIRP of the Corporate Debtor so as to extinguish their entire shareholding including that of Respondent No.1. The malafide intent of the Appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial recall of the initiation of CIRP of the Corporate Debtor. 12. It is the case of the Appellants that it is trite law that under the IBC once a debt becomes due or payable, in law and in fact, and there is incidence of non-payment of the said debt in full or part thereof, CIRP may be triggered by the Financial Creditor as long as the amount in default is above the threshold limit. The Adjudicating Authority is not required to go into any other aspect once it is satisfied that there is debt and default. It is their contention that in the present factual matrix the twin conditions of debt and default is squarely met. The Adjudicating Authority while passing the earlier order admitting the Corporate Debtor into CIRP on 17.05.2022 had been fully satisfied on the issue of debt and default. The said order had attainted finality and the extendable period of limitation had already been crossed. Hence the same cannot be reopened indirectly by the Respondent now by raising frivolous assertions as contained in IA-3602/2022 which has been erroneously allowed by the Adjudicating Authority without realizing that it is a belated attempt by the Respondent No.1 seeking recall of the CIRP order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore remains undisputed. Even the Resolution Professional ( RP in short) has confirmed the veracity of the loan disbursement made by the Appellants. The RP in his affidavit has clarified that: The borrowings have been shown in the Financial Statements of CD for the financial year 2016-17 and FY 2019-20 as long term borrowings and short term borrowing on consolidated basis. Party wise data was not shown in the audited balance sheet. However, the books of accounts which are being maintained on the tally accounting software which had been handed over to the Answering Respondent/Resolution Professional shows that the same under the head of Unsecured Loans. 16. Advancing their counter arguments, it was stated by the Respondent No.1 that the Section 7 application had been filed by the Appellants with the help of fabricated and manufactured documents as well as by suppression of material facts not for the purpose of insolvency resolution but for the ulterior motive of preventing the Respondent No.1 from regaining majority shareholder position in the Corporate Debtor which was likely to happen in the face of the anticipated success of the Respondent No.1 in their OMP. Hence, in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 refers to remedy under IBC at a time when IBC had not been notified on 21.07.2016. Thus, the fact that the agreement referred to IBC which legislation was not notified at that point of time reinforces the point that the loan document was antedated. It was also submitted that the Appellants have admitted that these loan agreements did not carry any stamp duty. Had the loan agreements been genuinely executed, appropriate stamp duty would definitely have been paid. 19. It is therefore the contention of the Respondent No.1 that all these lapses show that no genuine loan transaction had taken place between the Corporate Debtor and the Financial Creditors. The loan agreements did not reflect genuine loan transactions and were mere routine business transactions with the Appellants which were subsequently misrepresented as loans fraudulently to enable initiation of CIRP against the Corporate Debtor with the hidden motive of defeating the Respondent No.1 from taking over the Corporate Debtor as the dominant shareholder. 20. Elaborating on other false material particulars, it was submitted that the balance sheets for F.Y.s 2016-17 and 2019-20 during which period the alleged loans were s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for calculation of interest. Hence, the amount taken from the Appellants by the Corporate Debtor not having interest component or any time value of money, this does not qualify to be a financial debt as defined under Section 5(8) of the IBC. 23. It was further pointed out that the balance sheet of the Corporate Debtor showed a deposit of Rs.50.00 lakhs in FY 2016-17. However, in 2021 the same figure has been shown as Rs.97.00 lakhs which sum was equivalent to the alleged combined principal amount purportedly disbursed as loan by all the Financial Creditors. When the Financial Creditors were all separate and distinct juristic and natural persons, clubbing of loans purportedly taken from individual persons with those secured by a corporate entity is a clear indication of the pre-planned collusion and connivance between the Appellants exposing their fraud. 24. Pointing out another incidence of infraction of the Companies Act, it was submitted that the Corporate Debtor being a private company was not eligible under Section 76 of the Companies Act, 2013 to accept any loan from the Appellants as they were not members or share-holders of the Corporate Debtor. This further goes to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assented to by the President of India. On the allegation of non-stamping of the loan agreements rendering them invalid, it was stated that as long as there is sufficient material on record which substantiates the debt in question, the non-stamping of agreement is not relevant. Unstamped loan agreement does not render a Section 7 application non-maintainable. Such errors do not either negate or alter the nature or character of loan transactions undertaken between the parties. It was asserted that it is a well settled legal precept that a loan transaction even in the absence of written agreement is sufficient to fulfill the requirements of Section 7, hence, even if there are some infirmities in the loan agreements, as long as the loan was disbursed to the Corporate Debtor who thereafter defaulted in repaying the said debt, the tests laid down under Section 7 of IBC stand fulfilled. 27. On the contention of the Respondent No. 1 that the notes to balance sheets of the relevant FYs show that there were no borrowing costs for the Corporate Debtor during the FYs when the loans had been disbursed, it was contended that this assertion was misplaced and wholly misconceived. Both the Loan Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Financial Creditors seeking clarifications. When the financial creditors did not give their clarifications, the RP after perusing the records of the Corporate Debtor including the Balance sheet submitted a compliance affidavit to the directions of the Adjudicating Authority dated 23.08.2022. These observations have been placed in a tabular format by the RP in their affidavit before this Tribunal, the relevant excerpts of which are reproduced below though not in the original tabular format: 4. Allegation - Mentioning of new registered office in the alleged old loan agreement. Remarks- It is to be noted that as per form INC-22 filed with Registrar of Companies, the Registered office of Acute Daily Media Private Limited was shifted from: D.K-1, Danish Kunj, Kolar Road Tehsil Huzur Bhopal To E-3/235 Arera Colony, Bhopal-462016 on 30.04.2019. 5. Allegations-Mentioning of the remedy of IBC in the alleged loan agreement dated 21.07.2016. Remarks- It is submitted that IBC Code came into effect on 28.05.2016 when the assent of President was obtained on 28.05.2016. It was passed by Rajya Sabha on 05.05.2016. It is further submitted that Section 7 of the Code came into force on 01.12.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment) and term loans during the year. It is pertinent mention here that a similar allegation has been made for the FY 2019-20 and a similar remark/opinion/ stipulation has been made by the statutory auditor in their audit report for the FY 2019-20. 10. Allegations- Audit report of CD clearly shows no borrowing costs. Remarks- The statutory auditor report of the CD for the FY 2020-21 at point no 1(h) of the notes to the accounts, has a mention that The company does not have any borrowing cost 11. Allegation-CD not eligible to accept any loan from Respondent No. 4 to 6 Remarks- Para 4 of the Annexure A to the Independent Auditor Report, the Statutory Auditor report for the FY 2019-20 that the CD has not accepted any deposits from the public covered u/s 73 to 76 of the Companies Act, 2013. However, there was no mention about any loan taken in the statutory auditor report. 12. Allegations- Respondent No.1/ Financial Creditor not eligible to advance any loan to the CD Remarks- In compliance of Section 186 of the Companies Act, 2013, Respondent No.1 / Financial Creditor being corporate entity, has neither placed any documents pertaining to any resolution authorizing to extend the loan be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than the resolution of the insolvency of the Corporate Debtor. In the present case, the Applicant has stated that the original Section 7 application was filed to defeat the outcome of Oppression and Mismanagement case filed against the Corporate Debtor by the Applicant/Shareholder in 2013 (CP No. 143(ND)/2013) in which the present Applicant sought redressal of its grievance that the Promoters of M/s Sharp Eye Advertising Pvt. Ltd. decreased the shareholding of 62.57% to 17.86% by illegal allotment of shares to two other companies without due consent. It is noted that the said Petition was ruled in the favor of the Applicant. The Applicant has also pointed out various transactions reflected in the Audited Books of Accounts of the Corporate Debtor, which are purportedly contrary to the assertions made in the impugned proceedings under Section 7 of IBC, 2016 in the case of the Corporate Debtor. 11. These facts obviously were never brought before the Adjudicating Authority during the proceedings which culminated in the order dated 17.05.2022 initiating the CIRP in the case of the Corporate Debtor. Thus, we find enough justification to adjudicate the allegation leveled by the Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Corporate Debtor. From available records, we also agree that the receipt of this amount by the Corporate Debtor has not been controverted by the Corporate Debtor. Neither has any claim been made that this entire sum was paid by the Corporate Debtor. That being the case, there was outstanding payment on the part of the Corporate Debtor qua the Appellants which remained unpaid leading to a default. Basis this premise, we notice that the Adjudicating Authority on 17.05.2022 had initiated CIRP of the Corporate Debtor in terms of Section 7 of IBC. However, when the Section 65 application was filed, the Adjudicating Authority took cognizance of the fact that several facts had not been placed before the Adjudicating Authority during the Section 7 proceedings which culminated in the order of 17.05.2022. The question which needs to be answered is whether the Adjudicating Authority in the impugned order was correct in coming to the conclusion that in the absence of knowledge of these material facts, for reasons of having been either falsified or suppressed, the earlier order of 17.05.2022 failed to note that routine business transactions were fraudulently given the colour and charact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant documents have been filed before the ROC by the Respondent No. 1. (iv) The Statutory Audit Report of the Corporate Debtor for the FY 2020- 21 clearly points out at point no. 1(h) of the Notes to the Accounts, that The company does not have any borrowing cost . It is stated in the Annexure-A to the Independent Auditors Report, the Statutory Auditor Report for the FY 2019-20 that the CD has not accepted any deposit from the public covered u/s 73 to 76 of the Companies Act, 2013. Further, there was no mention about any loan taken in the statutory auditor report. (v) The RP has confirmed that he has moved from D.K-1, Danish Kunj, Kolar Road, Tehsil Huzur, Bhopal to E-3/235 Arera Colony, Bhopal- 462016 only on 30.4.2019 through the later address is mentioned in the Loan Agreements dated 21.07.2016. 13. In this context, we observe that: It is highly improbable that the first impugned loan transactions were made in the normal course of the business of the Respondent/Corporate Debtor and there is a valid ground to conclude that some of these evidences have been created much after the receipt of the amounts by the Corporate Debtor, which are subsequently given the color of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations. The tone and tenor of reply of the Appellants to all the above charges are clearly evasive and far from being resounding. The Appellants have not repelled the allegations on merits but have simply dismissed them by holding them as hyper-technical, irrelevant and obnoxious without adequate substantiation. 36. The Respondent No.1 has also raised the charge that the loan agreements did not reflect genuine loan transactions but were mere routine business transactions which were subsequently fraudulently misrepresented as loans to enable initiation of CIRP against the Corporate Debtor. In support of their allegations, it has been mentioned that the dates of Board meetings were not recorded in the Annual Returns of the Corporate Debtor, wherein resolutions were purportedly passed authorising the grant of loan. However, the Appellants have simply side-stepped this allegation by dubbing it as a hyper-technical objection. The RP has also confirmed that these Board meetings do not find place in the Annual Returns of the Corporate Debtor in Form No.MGT-7 for the financial years 2016-17 to 2019-20. When the Annual Returns which form part of the ROC records do not reflect Board meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions undertaken between the parties. It is however pertinent to note here that the RP while returning the finding that the borrowings were reflected in the Financial statements had also qualified their remark by stating that party wise data in respect of the borrowings has not been shown in the audited balance sheet and that this data figures only in the books of accounts which were being maintained on the tally accounting software of the Corporate Debtor where same is shown under the head of Unsecured Loans. However, given that tally data was prepared by the Corporate Debtor itself, the bonafide of this self-serving data cannot be relied upon. 39. No justification has also been provided by the Appellants as to how the Appellants inspite of being ineligible to advance the alleged loans had done so. That this tantamount to violation of Section 186 of the Companies Act has also not been denied. Yet another violation of the Companies Act has been the clubbing of the loans of private persons with the alleged loan of a corporate entity in the balance sheet which also has not been explained. All the noncompliance of the provisions of the Companies Act have been dealt with a stock reply t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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